Wisconsin’s tax system benefits highest earners
On April 15, taxes are on a lot of people’s minds. We all need to work to make our tax system more fair. Wisconsin does better when we all do better. Unfortunately, incomes for middle class and low-income people have stagnated in recent decades, while the wealthiest have seen their incomes skyrocket.
Our state tax system makes this problem worse.
In fact, if you look at who pays taxes in Wisconsin, it turns out that middle class and low-income families pay a bigger share of their incomes in state and local taxes than the wealthiest households in the state. Struggling families pay 9.6 cents out of every dollar they earn in state and local taxes, while the wealthiest taxpayers pay just 6.9 cents out of every dollar of income. And many large, profitable corporations in Wisconsin pay little or no state income taxes at all.
This tax reality seems to run counter to the Wisconsin values of fairness and responsibility and opportunity for all.
Wisconsin’s Earned Income Tax Credit helps address this problem by allowing parents who work at low-wage jobs to keep more of their income so they can better afford necessities. It reduces poverty among working families in our communities. That pays dividends over the long term by helping kids grow up in economically stable households, which has shown to improve performance in school, make them less likely to get in trouble and even earn more later on as adults.
Unfortunately, actions by the state legislature have been widening rather than shrinking the gap between what low-income families and the wealthiest households pay in taxes. Many of the recent income tax cuts in Wisconsin give hefty benefits to the highest earners while giving no tax break at all to many taxpayers who are having a hard time making ends meet. And the legislature actually raised taxes on parents trying to lift their families out of poverty when it made deep cuts to the state’s Earned Income Tax Credit.
Another tax change enacted in 2011 that hurts low-income families is the repeal of a statute that adjusted the Homestead Tax Credit to take inflation into account. Nearly every part of the state tax code is adjusted each year, which prevents inflation from eroding the size of tax deductions and from pushing middle- and high-income households into higher tax brackets. However, because the state has stopped making similar adjustments to the Homestead Credit, the number of elderly people and other low-income households who qualify is declining each year, as is the average size of the credit for those who remain eligible.
Wisconsin’s tax system exacerbates the growing gap between the rich and everyone else. State lawmakers should focus on making the tax code fairer instead of passing tax cuts that make it less fair. In addition, state lawmakers should turn their attention to measures that could grow the state’s economy and lift families out of poverty, such as reversing the recent cuts in the state’s tax credits for low-income households and cuts to early care and education.
Ken Taylor is executive director of the Wisconsin Council on Children and Families.